Credit risk

With any form of credit, loan or sale on credit, there is an inherent risk that a debtor/borrower cannot fulfill its repayment obligation to the creditor/lender.

This inherent risk is commonly referred to as credit risk and is a concept that banks, lenders and large corporations in particular are actively working on - but small and medium-sized businesses should also take more interest in the topic.

If a credit risk is high, the risk of a debtor/borrower not paying its obligations will also be high. If the credit risk is low, the risk of a debtor/borrower not paying their obligations is considered to be correspondingly low.

Banks and other lenders have internal policies and legislation that regulate how big the lender's credit risk can be - and partly depends on the lender's appetite for granting a loan.

What affects credit risk?

There are several factors that can affect credit risk, but among the most important parameters is the size of the loan against the borrower's financial situation (income).

If the loan/credit is large and the borrower's income is high, this will result in a low credit risk - whereas high credit and low income(s) will result in a higher credit risk.

In addition to the size of the loan, the credit/loan term can also have an impact on whether the credit risk is increased.

Debt factor

The concept of debt factor is typically used by banks and other lenders as a tool in their overall credit risk when granting loans to a debtor/borrower.

A debt factor is calculated by taking the debtor/borrower's total debt divided by the debtor/borrower's annual income. 

The debt factor will thus be calculated as follows:

Total debt: 1.500.000 kr
Total annual income: 480.000 kr

1.500.000 / 480.000 = 3,125

What constitutes a high and low debt factor can vary from bank to bank - but often a debt factor of 4 or more will be characterized as "high" - while a debt factor of 3.5 or less is often acceptable when granting a mortgage loan.

Thus, the more high debt factors a bank or mortgage company has in their overall portfolio, the higher the credit risk the bank will have. 

Credit risk mitigation

All debt and credit has an inherent risk of non-payment in whole or in part - but banks, lenders and businesses can fortunately take many measures to avoid, minimize and limit their risk.

One of the ways to reduce risk is through credit assessments and general background checks on the debtor; financial statements, annual statements, residence, marital status, number of children, other loans, etc. 

Udover kreditvurderinger kan der foretages monitorering / overvågning af kunders kreditværdighed i lånets / kredittens løbetid, hvilket bl.a. involverer at der løbende foretages kredittjek – for at sikre sig, at kundens økonomiske forhold ikke har ændret sig væsentligt – eksempelvis ved at være registreret i et gældsregister eller lignende.

Use Qatchr - and reduce your credit risk

Hos Qatchr har vi udviklet en online platform, der kan hjælpe din virksomhed med at indhente kreditoplysninger til din kreditvurdering af virksomheder og private – og dermed være med til at nedbringe din risiko, når du yder kredit eller låner penge til dine kunder.

Med Qatchr kan du eksempelvis foretage kredittjek, når en kunde henvender sig til din virksomhed og ønsker at købe varer eller tjenesteydelser af jer – men Qatchr kan også bruges til løbende at forespørge på, og abonnerer på, dine kunders kreditværdighed.

Qatchr provides you with a wide range of relevant information; name changes, address changes, publication of accounts (companies), debtor status, bankruptcy and death.

Would you like to try Qatchr today?